At least one loan servicing company is retooling mortgages to lower the loan balance as well as the rate in order to keep borrowers in their homes. Reducing the principal on mortgages is “a last resort,” says Paul Koches, executive vice president at Ocwen Financial Corp., a West Palm Beach, Fla., loan servicer. Ocwen has reduced the amount owed on 10,884 delinquent mortgages as of Sept. 30. That’s about 25 percent of all loans modified by Ocwen this year. Dropping the principal has looked like a last resort to many lenders and servicers because they fear investor backlash. Ocwen says the writedowns are generally less than the company’s average loss of $122,000 on a foreclosure. Ocwen is the nation’s sixth-largest subprime-mortgage servicer, according to Inside Mortgage Finance, with about $45 billion of mortgages under management.

Source: The Wall Street Journal, Ruth Simon